Inflation in the Euro zone hit 2.4% in December, in line with forecasts.

• In December, Eurostat reported that the annual inflation in the euro zone increased for the third consecutive month, reaching 2.4%.
• The preliminary reading of the economy was in line with the forecast of economists surveyed by Reuters and was higher than the revised 2.2% print in November. Core inflation remained at 2.7% for the fourth consecutive month, while services inflation increased to 4% from 3.9%.
• "The European Central Bank will continue to cut interest rates despite the temporary effects of high services inflation, according to Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics."

In December, Eurostat reported that the annual inflation in the euro zone increased for the third consecutive month, reaching 2.4%.

The preliminary reading of the economy was in line with the forecast of economists polled by Reuters and marked an increase from a revised 2.2% print in November. Core inflation held at 2.7% for a fourth straight month, also meeting economists' expectations, while services inflation nudged up to 4% from 3.9%.

The European Central Bank will closely monitor the full extent of increases in headline inflation, which is expected to accelerate after hitting a low of 1.7% in September, as base effects from lower energy prices fade. The bank currently expects to cut interest rates from 3% to 2% across several trims this year.

In Germany, the pace of price rises in the euro zone's largest economy hit a higher-than-expected 2.9% in December, according to figures published separately this week. Meanwhile, inflation in France came in at 1.8% last month, below a Reuters analyst poll forecasting a 1.9% print.

The euro gained 0.33% against the U.S. dollar following the print, trading at $1.0424 at 10:43 a.m. in London. Traders are evaluating the possibility of the euro declining to parity with the greenback this year if the U.S. Federal Reserve proves significantly more hawkish than the ECB.

According to Haig Bathgate, director of Callanish Capital, ECB policymakers would not be excessively worried about a higher monthly inflation rate as long as it aligns with expectations.

"The direction of travel of rates in Europe is now more predictable than in the U.K., as stated by Bathgate on Tuesday," said Bathgate.

Despite frontloading pricing for rate cuts at the beginning of the year, the ECB is likely to cut interest rates at a slow pace due to the stickiness of services inflation, according to Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics.

The ECB will continue to cut interest rates despite core inflation remaining unchanged at 2.7% for four consecutive months, according to Allen-Reynolds.

"While temporary effects are partly responsible for the high level of services inflation, the labor market has become looser, wage growth is slowing, and the growth outlook is weak."

Despite a 0.4% growth in the euro zone economy in the third quarter, economists caution that political instability, manufacturing weakness, and the possibility of intensified trade tensions under the new U.S. President-elect Donald Trump's administration may negatively impact the outlook for 2025.